At a glance
- From contactless to Bitcoin, consumers now have an increasing number of payment methods to choose from
- In 2015, cashless payments overtook notes and coins for the first time
- With a possible payments revolution on the horizon, we look at how we might pay for goods and services in the future
We are spoilt for choice when it comes to paying for goods and services – from cash to credit cards, payments via our mobile phones, and now even cryptocurrencies such as Bitcoin.
In 2015, cashless payments overtook the use of notes and coins in the UK for the first time. The Payments Council reported that cash accounted for only 48% of payments made by consumers, businesses and financial organisations, with 52% being made via cashless means.
There is a revolution in financial technology – fintech – underway, with vast investments being made to find new and improved methods of payment. In fact, 2014 saw £8.26bn invested globally in fintech companies, triple that of the previous year.
With the potential for big changes on the horizon, we take a look at how payments are likely to be made in the future.
Anything, anytime, anywhere
A major goal of the fintech industry is to make payments as easy and accessible as possible.
The credit card was a major historical step forward more than 60 years ago, enabling users to make large transactions in stores without the need to carry vast amounts of cash. Since then, payment technology has progressed significantly – from the advent of online payments, to the recent introduction of contactless cards.
As more and more of our everyday devices become connected to the Internet of Things, the next step is for all kinds of objects to begin facilitating payments.
Apple is one firm pioneering such technology; its widely publicised Apple Pay service offers a digital wallet, allowing users to store card details online and make secure, contactless payments via their iPhone and other Apple devices.
A number of other household names also offer similar wallet services, all of which draw on existing contactless payment technology.
It is now commonplace for card details to be stored online, and with an increasing number of everyday objects having internet connectivity, many predict physical wallets may become a thing of the past, with future consumers making payments via various personal devices, such as phones, watches, jewellery and other wearable technology.
For new payment methods to gain mainstream acceptance, consumers must be confident that their money is safe while using them. Following a string of high profile cyber attacks in recent years, security is at the forefront of many people’s payment decisions, and fintech firms are exploring new ways to protect payment data.
Tokenisation is one method already being used by many digital wallet applications, such as Apple Pay. Tokenisation ensures that the retailer never sees the customer’s payment details, as they would if handed a credit card; instead they receive an encrypted piece of information (a token), which limits the chances of card fraud.
As more payment data is migrated online, contactless methods become more widespread and the sophistication of cyber criminals continues to grow, it is likely that traditional passwords and PINs will quickly become inadequate. Additionally, as more personal devices become capable of making payments, verifying they are being used by their rightful owners will become increasingly important.
More sophisticated recognition technology, such as biometrics, is therefore likely to become more common. Instead of an alphanumeric password, users will need to verify their identify by way of a fingerprint, iris scan, or even the veins in their hand.
Potentially, biometrics could even eliminate the need to carry any kind of payment technology at all, with retailers simply using unique human identifiers to process a payment.
Cryptocurrencies, and specifically Bitcoin, have received a lot of attention in recent years. Whereas traditional currencies are issued and controlled by a central bank (such as the Bank of England or United States Federal Reserve), cryptocurrencies are entirely decentralised and are maintained by the users themselves.
Tokenisation – the process of substituting a sensitive data element with a non-sensitive equivalent.
Biometrics – the measurement and statistical analysis of people’s physical and behavioural characteristics. For example, fingerprint scanning or facial recognition. Used primarily for identification and access control.
Cryptocurrency – a digital currency where encryption techniques are used to regulate the introduction of units of currency and to verify the transfer of funds, operating independently of a central bank. The most famous example being Bitcoin.
Blockchain – the technology underpinning the Bitcoin digital currency.
Cryptocurrencies completely reimagine how currency can exist and operate, arguably solving many perceived problems with traditional currencies, such as the need for middlemen (banks and credit card companies) to verify transactions for a fee.
To find out more about how cryptocurrencies work there are a number of helpful guides available online.
Although cryptocurrencies such as Bitcoin are no doubt revolutionary, issues, such as their volatility and difficulty of use for the average consumer, may restrict them from becoming mainstream in their current form.
Despite this, the underlying principle of these currencies – the ‘blockchain’ – has such potential to transform global payments, that nine of the largest investment banks have recently partnered to research how to integrate block chain technology into financial services.
It is anticipated that blockchain technology could help reduce future transaction costs and error rates, increase security and make systems more adaptable and scalable.
So, is this the death of cash?
Although we can expect some exciting changes on the horizon for payment technology, this does not spell the death of cash; there is simply no medium that is as reliable, easy to use and widely accepted.
Although cash use is predicted to continue to fall in the coming years, it is broadly accepted that cash will still continue to play an important role in the global economy.
How we can help
As payment technologies progress, customers are likely to begin to accept new forms of payments and transact a greater amount of sensitive customer information.
Businesses will need to continue to develop data security strategies to protect this information. As a broker, you have an opportunity to identify this trend and offer additional advice on issues such as cyber security, crime and employee fidelity.
For more information on the issues discussed in this article, or other emerging risks affecting your customers, contact your usual Zurich contact.